Total Arla group revenue was €6.38 billion for first half of 2022 – up 17% compared to €5.44 billion in first half of 2021.
According to the latest accounts from the company, this was driven almost exclusively by significant price increases in Arla’s retail and food service and commodity trading businesses.
The European dairy cooperative was able to make increases to its pre-paid milk price to farmer owners as they face significant production cost increases in feed, fertiliser, and fuel.
But the continued global volatility has resulted in a declining global milk supply despite a stable demand.
Arla Group milk price
The first half of 2022 was dominated by inflation and uncertainty throughout the global dairy supply chain that accelerated late spring and through the summer.
Following two years of exceptional branded growth in retail, as expected, branded volume revenue growth slowed down to –0.1%. Arla’s performance price – which measures the value created per kilogram of owner milk – was 49.6c.
Profit share was 3% and in line with the cooperative’s new retainment policy, Arla will pay out its first ever half-year supplementary payment to farmer owners of 1c/kg of milk based on the milk volumes delivered in the first half of 2022.
Arla’s average pre-paid milk price to farmer owners increased 30.9% in the first half of 2022, compared to the same period in 2021, with further increases over the summer.
However, this has yet to secure an increase in milk production due to the continued and significant increase in on-farm costs and uncertainty created by the current global market conditions, according to the co-op.
As examples, the prices of fertiliser have increased 145%, fuel by 134%, and feed by 36% on average, while global inflation is forecasted at 7.7% for 2022.
Milk volume
Arla’s milk volume decreased to 6.8 billion kg compared to 7 billion kg in the same period last year, in line with global trends.
Arla Foods CEO, Peder Tuborgh said: “It is an extraordinary time for both our farmer owners and the company as food and farming industries experience high levels of exposure to inflationary pressure.
“I am pleased that we have been able to move the pre-paid milk price up for our farmer owners to help them with their increased production costs.
“We are now also able to deliver on our first ever half-year supplementary payment to support future investments in sustainable actions on their farms.”
Brand performance
According to the accounts, in the first half of 2022, Arla’s strategic brands delivered revenue growth of 12.7% to €2.9 billion mainly due to price increases.
As expected, branded volume growth declined –0.1% in retail as consumers adjust their purchasing. The Arla brand maintained its performance with -0.1% volume growth, delivering a revenue of €1.78 billion.
CFO of Arla Foods, Torben Dahl Nyholm said: “The impact of Russia’s invasion of Ukraine has, in addition to the humanitarian costs, added substantial pressure on global markets, supply chains and businesses, leading to an accelerated inflationary environment for our and many other industries.
“The current global milk supply shortage resulted in a market situation where the dairy commodity markets put significant pressure on our retail product margins in the first half of 2022.”
Arla’s food service business continued to bounce back from the pandemic in both its Europe and international zones and delivered branded volume growth above pre-Covid levels of 19% mainly driven by the Danish and UK markets and by the Arla Pro and Lurpak brands.
In Arla’s European and UK business segment, revenue increased to €3.5 billion compared to 3.2 billion in the same period last year.
Arla Foods Ingredients (AFI) experienced a continued high demand for its specialised whey protein and lactose products.
Sustainability
In the first half of 2022, Arla announced the endorsement from the Science Based Target initiative, confirming that its sustainability targets and plans are consistent with what is required to meet the Paris Accord target of limiting global warming to below 1.5°C.
Arla also signed its first major Power Purchase Agreement to build four new solar parks with an expected capacity of 250GWh.
On-farm, Arla started a large-scale pilot with the methane reducing feed additive Bovaer with 10,000 dairy cows across more than 50 farms in three countries.
Outlook for Arla
With ongoing inflationary pressure and political unrest negatively impacting global growth, Arla expects the second half of 2022 to be even more challenging as the global milk production is expected to decline further.
The company feels this will contribute to sustained high dairy prices, which, it said, will likely further diminish consumer confidence and consumption.
“2022 continues to be characterised by volatility and inflation, exacerbated by Russia’s invasion of Ukraine. Changes in consumer behaviour continue to be multifaceted and difficult to predict and we expect our branded growth will slow down further,” Tuborgh added.
“As a cooperative, we remain committed to be in a position to pay out the second instalment of our planned full-year supplementary payment of a total of at least 1.5c/kg of milk to our farmer owners.”